Trump Administration Axes Government-Backed Savings Program myRA

The U.S. Treasury Department on Friday announced it’s ending the myRA program, a government savings program meant to encourage non-traditional workers to save for retirement, not even two years after the accounts became available nationwide in November 2015, under the Obama administration. In a press release, the department says it will start to “wind down” the program as part of Trump administration efforts to “promote a more effective government.”

“The myRA program was created to help low to middle income earners start saving for retirement. Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program,” said Jovita Carranza, U.S. Treasurer in today’s press release.

Carranza also noted demand for myRA had been extremely low. Currently, according to a treasury spokesperson, there are 20,000 myRA accounts with a median balance of $500 and an additional 10,000 accounts with no balance. That’s up from the 15,000 workers who were enrolled in myRA by the program’s first anniversary in November. Still, that’s not much, given the program was intended to help some 40 million working-age households that don’t own any retirement account assets.

In the press release, the department says myRA has cost American taxpayers about $70 million to maintain. The spokesperson told MagnifyMoney myRA would cost taxpayers an additional $10 million annually if continued.

What Is myRA?

The myRA account was free to open, charged no fees, and didn’t require a minimum deposit to open an account. These features were intended to appeal to workers who may not have access to traditional retirement savings accounts like a 401(k) or 403(b). Workers could contribute up to $5,500 annually, or $6,500 if they were 50 or older, up to $15,000 before having to roll the account into a private-sector Roth IRA.

myRA funds earn interest at the same rate as the Government Securities Investment Fund, which earned 2.04% in 2015 and 1.82% in 2016. That’s a larger return, on average, than savers would get keeping their funds in a typical big bank savings accounts today, which tend to carry fees and offer interest rates as low as 0.01% (though digital banks tend to offer a better rate of return). The single investment option also offered consumers a simpler alternative to choosing from a variety investment options within traditional retirement accounts.

How Does This Affect People With myRA Accounts?

The department has posted a list of FAQs and answers for account holders on myra.gov. For the moment, account holders can continue making deposits, and their balances will continue to accrue interest. The website says the Treasury Department will reach out to all account holders with information about transferring funds from or closing the account and will notify account holders of when it will stop accepting and processing deposits.

In the meantime, account holders should log in and make sure their contact information is accurate, so they can be reached.

The post Trump Administration Axes Government-Backed Savings Program myRA appeared first on MagnifyMoney.

myRA One Year Later: 15,000 Enrolled as Government-Backed Savings Account Struggles to Catch On

myra

It’s been a year since the U.S. Treasury Department launched myRA, a savings account meant to encourage non-traditional workers to save for retirement. So far, just 15,000 workers have enrolled, a Treasury spokesperson told MagnifyMoney.

That’s a drop in the bucket for a program intended to help some 40 million working-age households that don’t own any retirement account assets. The spokesperson, who requested to speak only on background, acknowledged the difficulties of targeting non-savers, a group that isn’t necessarily looking for retirement savings options in the first place. The department’s enrollment strategy focused on partnering with companies directly, whose leaders would in turn encourage their staff to enroll.

As it stands, only people who work at myRA partner companies can participate in the program, and their contributions are taken out directly from their paychecks. The spokesperson declined to say how many companies currently participate. It’s possible the department could make myRA available to all workers in the future.

myra Satori Bailey, director of asset-building programs for the Center for Economic Progress, says leveraging employees’ trust in their employers was a smart move on the department’s part.

“The trust that’s built between an on-the-ground agency is the trust the [Treasury Department] can leverage,” Bailey said. The Center for Economic Progress is currently a myRA partner.

myRA accounts are meant to appeal to workers who may not have access to traditional retirement savings accounts like a 401(k) or IRA. Workers can contribute up to $5,500 annually, or $6,500 if they are 55 or older. Instead of choosing from an at-times confusing array of investment options as one would with most other IRAs, savers’ myRA funds are invested in just one asset: U.S. Treasury bonds, which offer a guaranteed 2% return.

“It seems that a lot of people are not venturing into the private IRA sector because it’s too confusing,” said Bailey. “What the Treasury has done is make this a starter account that is very simple. There will be some yield, and that yield will be generally in your favor.”

A 2% return is many times better than the typical big bank savings accounts today, which charge onerous account fees and offer interest rates as low as .01% (and are constantly bested by digital banks). The myRA account is free to open, doesn’t charge any fees, and doesn’t require a minimum amount of savings to open an account. These features were intended to attract individuals to the program. Clearly, there’s still a long way to go to bring myRA into the mainstream.

The future of myRA

myRA is meant to be something of a starter savings account for workers. Workers can only save a maximum of $15,000. Once they hit that threshold (or they hit the 30-year mark), they have to roll over their account into a traditional IRA.

Two states, Washington and New Jersey, have passed and enacted laws that use a state-based marketplace to encourage citizens to save for retirement; myRA is an available marketplace option in both states. The department says it has received inquiries from other states about myRA’s use in state programs as well.

myRA was launched under the Obama administration. It is yet unclear what myRA’s future will be when Donald Trump takes office.

“I hope that retirement savings for the average American, for all Americans, is such a nonpartisan issue that the department and myRA will maintain its support in the government,” said Bailey.

 

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Is a myRA a Good 3% Savings Account for Emergency Funds?

Man Paying Bills With Laptop

Starting November 4, 2015, a new government-back retirement account called myRA became available to the general public. It is designed to be a starter account that’s simple to understand and use. There are no account fees or minimum funding requirements, you can transfer as little as you want into the account each month, and your investment has a guaranteed rate of return backed by the Federal Government.

That means the money you put in your myRA is as safe as an FDIC insured savings account – and you’ll earn a rate that could be 3 times what you get in a good savings account. The rate of return was around 3% last year.

Using the myRA to house your emergency fund

One of the most common recommendations in personal finance is to build an emergency fund – an account with three to six months’ worth of expenses in it. The money should be easy to access and used during a serious emergency, such as a medical accident, loss of a job, or breakdown of your primary vehicle.

The myRA account may be a good place to keep your emergency fund as it is insured by the Federal Government, offers a guaranteed rate of return that’s higher than most savings accounts, and the contributions you make to the account can be withdrawn at any time.

Before considering all the pros and cons of keeping your emergency fund in a myRA account, let’s take a closer look at how the myRA account works.

Opening a myRA account 

You can open a myRA account as long as you earned income in the United States during the last year and your modified adjusted gross income was below $131,000 in 2015. The maximum is $193,000 if you’re married and file taxes jointly, and the limits may change in the future.

To open an account, go to myRA.gov. You’ll need a Social Security number or Individual Tax Identification Number (ITIN), government ID, and be ready to list someone as a beneficiary. The account is linked to you, not an employer, so it doesn’t matter if you don’t have a steady job or change employers.

Three ways to fund your myRA account

Once you open a MyRA account, you can deposit money into the account in three ways.

  1. Direct Deposit: If you already have direct deposit set up with your employer, you can fill out a myRA direct deposit authorization form and have a portion of your pay sent to your account each pay period.
  2. Transfer from checking or savings: You can also choose to transfer money directly from a checking or savings account. This can be set up as a one-time transfer or a recurring transfer.
  3. From a tax refund: If you receive a tax refund, you can request that a portion of your refund be deposited in your myRA account. To do so, mark the savings box on the refund portion of your tax return. You’ll need your myRA account number and the routing number, which is 111925074.

You can contribute as little as you want to a myRA account; you can even set up a recurring transfer or direct deposit for $2 every month. Some other managed retirement accounts have minimum investment requirements, which can make getting started difficult. “The advantage of not requiring a minimum balance is individuals can start investing now,” says Sam Farrington, Founder and Financial Planner at SoundMind Financial Planning in Omaha, Nebraska. “It’s so important to start saving as early as possible!”

There is, however, a limit to how much you can contribute each year: $5,500 in 2015 or $6,500 if you’re 50 or older. The myRA account is a Roth Individual Retirement Agreement (IRA). If you have another Traditional IRA or Roth IRA, the annual limit applies to the total contributions made to all your accounts. The maximum contribution limit may rise or fall in the future.

myRA investments are U.S. Treasury bonds

The funds in myRA accounts are invested in United States Treasury savings bonds, a loan to the Federal Government. This is considered to be one of the least risky investments available because the Federal Government guarantees repayment, but there are risks to consider

The interest you’ll earn on the money in a myRA account may change from one year to another. In 2014, funds earned 2.31 percent. Over the last decade, the average annual return was 3.19 percent. This may be less than what one might earn with other investment options, but the low rate reflects the fact that this is a low-risk investment. You won’t lose money by investing in a myRA account.

Withdrawing money from a myRA account

If your myRA account has $15,000 in it or is 30 years old, the account will be closed, and you’ll have to transfer, or rollover, the funds into a private-sector Roth IRA. If you want, you can also transfer the funds at any point.

As with a Roth IRA, the contributions made to the account can be withdrawn at any time. When you withdraw money, your contributions will automatically be taken out first. You can call 855-406-6972 or make a request online to either transfer the money to a linked checking or savings account or receive a personal check.

A withdrawal request may take up to three business days to process, but generally are processed the same day if they’re received by 9 p.m. ET. Once the request is processed, it may take up to five additional business days for the funds to be available and another few days before the check arrives or the transfer to your account is complete.

Unlike with contributions, the earnings in the account must be qualified before you withdraw them or you will have to pay income tax plus a ten percent penalty. To qualify Roth IRA and myRA earnings, the account must be open for five years, and you must meet one of the following criteria:

  • Be 59 and a half years old.
  • Use the money for a first-time home purchase, there’s a lifetime maximum of $10,000.
  • Become disabled.
  • Give the money to a beneficiary after your death or disability.

Who should open a myRA account?

The lack of fees, single investment option, and guaranteed returns make myRA a good option for some savers. 

Pamela Horack, CFP®, Founder of Pathfinder Planning LLC in Lake Wylie, South Carolina says, “I’m a fan of the MyRA program for certain groups that need help beginning to save.” She’s found it can be particularly useful for low-paid workers as they can get started even if they only have $5 to spare.

On the other hand, some people may be better off managing their own accounts. “More advanced savers, and young investors, would be better suited for a Roth IRA in which they can diversify their holdings and take advantage of potentially higher rates of return,” says Patrick Daniels, Financial Planning Analyst at Precedent Asset Management in Indianapolis, Indiana.

A private-sector Roth IRA has the same contribution limits and withdrawal rules, but you can invest in thousands of different financial products, including individual stocks. You may be able to replicate the myRA investment by buying 30-year Treasury Bonds within a private-sector Roth IRA, but you may need to pay a transaction fee each time you purchase a bond.

myRA versus other types of retirement accounts

The myRA account is intended as an option for individuals who don’t have an employer-sponsored retirement account and don’t feel comfortable, know how, or know about private-sector IRAs. If you have a 401(k), 403(b), or another type of employer-sponsored retirement account, you may be better off putting savings there. Some employers match employee contributions, which can significantly increase your savings rate.

Another difference is that employer-sponsored retirement accounts allow you to defer taxes, as is the case with a Traditional IRA. This means that you’ll pay taxes on the contribution and the earnings when you withdraw the money, but you don’t pay taxes now. In practice, you’ll write off – subtract – your contribution to your income for the year when filing taxes.

You may be able to choose a Roth version of an employer-sponsored account. Similar to Roth IRAs and myRA, you’ll pay taxes on the contribution now (no write-off), but the earnings and therefore distributions in retirement are completely tax-free.

The final word on a myRA for your emergency fund

If you’re saving for retirement with an employer-sponsored plan and don’t contribute to other IRAs, the myRA could be a good place to keep your emergency fund. However, there are several drawbacks to consider. If you already have an emergency fund, the annual contribution limit means it may take several years to transfer the money into the myRA account. A large emergency may deplete more than a year’s worth of contributions. Additionally, depending on your monthly expenses, the $15,000 limit may not be enough to accommodate an entire emergency fund.

Even with its drawbacks, the myRA account can be a good option for an emergency fund because there are no account management fees and you’ll earn more interest than you would with most savings accounts. The investment is also backed by the Federal Government and the interest and principal are guaranteed. Although, to avoid paying penalties, don’t withdraw interest that isn’t qualified.

It may take up to two weeks to receive an electronic transfer or personal check when you withdraw money from a myRA. In case you’ll need money right away, you may want to consider keeping part of your emergency fund in an account that’s easier to access or keeping a credit card that’s designated for emergencies and then paid off with withdrawn funds.

Those looking for a place to store an emergency fund may also consider a high-yield checking account or savings account.

[Check out the best online savings accounts here.]

A savings account would probably be more ideal for money you want to store away and not regularly access. Some checking accounts offer up to three percent interest, however you will need to meet monthly requirements and jump through several hoops to receive the high interest rate. You may need to set up direct deposits into the account (transfers from another bank account may count), make a particular number of purchases with the debit card each month, or sign up for electronic statements. It can be a lot of work to manage and track compared to the no-fee and easy-to-manage myRA or a 1.00% APY or higher savings account.

The post Is a myRA a Good 3% Savings Account for Emergency Funds? appeared first on MagnifyMoney.